Rethinking the Role of Domestic Support in Distorting Trade

Until the Uruguay Round Agreement (URAA) domestic support received less attention and it was URAA explicitly addressed the trade distortions arising out of domestic support policies in agriculture. The theories on trade distortions however claim the supremacy of border measures in distorting trade. A number of empirical studies also hold the same line of view. There are a number of reasons for this. The definitions used by the WTO for addressing domestic support issues have serious limitations. For instance some developed countries, mainly the United States have strategically used the de minimis exemption to deflate their support figures substantially in order to remain within Aggregate Measure of Support (AMS) limits, even though total support has exceeded these limits. In addition to this the WTO framework itself enabled the developed countries with enormity of domestic support, to restructure their support in a way that they require no reduction commitments. Therefore, the major reason for the strife between developed and developing countries are related to the nature and identification of domestic support into various boxes. The paper therefore, gives more emphasis on domestic support by analysing the impact of crop specific support provided by the US, the major player in the world market, in distorting domestic prices. The paper also tries to capture the extent of dumping into the world market by US and their likely implications on the trade prosperity of developing countries.